Foreign-stock trading for the rest of us
Fidelity recently began offering some online customers–active traders, or those with at least $1 million at Fidelity–the opportunity to buy and sell stocks listed on foreign exchanges. They now join other online brokers who also provide this service, such as Interactive Brokers and E*Trade.
Don’t feel too left out if you don’t use Fidelity or similar brokers, or don’t make many trades. There are plenty of other ways for your investments to gain international exposure right here on our major exchanges. American Depositary Receipts (ADRs) have been around for some time, and are available for most of the largest foreign corporations. And now exchange traded funds are numerous (probably too numerous, but that’s a topic for another day). You now have a choice of over 100 ETFs with which to invest in foreign markets.
Also, buying stocks like a local may not necessarily be more efficient, or profitable. Recently, a study by a leading Indian business newspaper determined that the returns of Indian companies were actually superior if you bought their ADR instead of buying the stocks directly from the Bombay Stock Exchange.
There’s also the tax men to consider, both ours and theirs. Many countries require a tax withholding on any dividends paid out, and it’s often at a rate that is higher than the maximum, 15-percent rate on qualified dividends currently in place for Americans. To avoid double taxation, you can retrieve the difference back from Uncle Sam via tax credits, but in the meantime you’re out of pocket. This credit, by the way, is also available to owners of mutual funds with holdings abroad. You should receive a 1099-DIV form from the fund by the end of January, indicating the share of foreign tax you’ve paid.–Chris Horymski
Don’t feel too left out if you don’t use Fidelity or similar brokers, or don’t make many trades. There are plenty of other ways for your investments to gain international exposure right here on our major exchanges. American Depositary Receipts (ADRs) have been around for some time, and are available for most of the largest foreign corporations. And now exchange traded funds are numerous (probably too numerous, but that’s a topic for another day). You now have a choice of over 100 ETFs with which to invest in foreign markets.
Also, buying stocks like a local may not necessarily be more efficient, or profitable. Recently, a study by a leading Indian business newspaper determined that the returns of Indian companies were actually superior if you bought their ADR instead of buying the stocks directly from the Bombay Stock Exchange.
There’s also the tax men to consider, both ours and theirs. Many countries require a tax withholding on any dividends paid out, and it’s often at a rate that is higher than the maximum, 15-percent rate on qualified dividends currently in place for Americans. To avoid double taxation, you can retrieve the difference back from Uncle Sam via tax credits, but in the meantime you’re out of pocket. This credit, by the way, is also available to owners of mutual funds with holdings abroad. You should receive a 1099-DIV form from the fund by the end of January, indicating the share of foreign tax you’ve paid.–Chris Horymski
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Posted by: Jeff T | Nov 12, 2009 5:34:52 PM
For those of us investing in 401K that bought mutual funds with holdings abroad, do we get taxed as well?
Also, if I have Fidelity Diversified International fund, for example, does this automatically mean I have foreign holdings? How can we tell?